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The World Business Council puts capitalism on notice

March 26, 2021, 10:00 PM UTC

Ten years ago, the World Business Council for Sustainable Development released a report outlining a series of actions they believed the business community needed to take and goals to prioritize in order to prevent the disastrous effects of  irreversible climate damage. 

Now, 10 years later, The Council—made up of 200 global businesses including 3M, BP, Google, Microsoft, Apple and PepsiCo—has returned with another report, and a harsh warning for the business community it represents. Change, says the report, is not happening at the required speed or scale, and the window of opportunity to take impactful action is rapidly closing. Vision 2050 outlines nine direct ways businesses can drive change in their communities and influence governments to do the same. 

“The need to transform systems is rightfully – the concept that everyone in sustainability is talking about; now, it needs to be backed up by actions. It is now or never,” wrote WBC CEO Peter Bakker. “I see this as a hugely exciting prospect, but I know that it is not an easy one. However, whether you like it or not, we are all changemakers now, with business having to play a leading role in the transformations toward Vision 2050, working together with governments, regulators, investors and all people.”

The report, which was developed with help from companies lile 3M, Bayer, Chanel, EY, IKEA, Microsoft, Mitsubishi, Nestlé, Shell, Toyota Unilever, and more, hinges upon Fortune 500 companies radically shifting their views on capitalism and standardized accounting practices, a big ask, but one Bakkar says is entirely possible.  

Bakker agreed to speak with Fortune in an exclusive interview about the report by phone from Geneva, Switzerland.

This interview has been edited and condensed for clarity. 

Fortune: This is the first comprehensive report by the World Business Council for Sustainable Development in ten years. What was the impetus for creating a follow-up?

Peter Bakker: The original Vision 2050 report was published in 2010. When we looked at that work again we realized that the issues at hand had become much more urgent than they were perceived to be 10 years ago. Technology plays a very different role in the world, for example. It’s been a two year process, and about halfway through that COVID-19 emerged which brought a new and interesting perspective. It showed the interconnectedness between nature, health, and how societies function, and it showed how unprepared our society is for these big shocks. So the question of resiliency became much more important. And I think inequality has been pushed into the spotlight recently. We tried to reflect that in the new report.

You work with over 200 large businesses that represent a combined revenue of more than USD $8.5 trillion and 19 million employees. And in this report, you’re essentially saying that they dropped the ball on climate change, they haven’t done enough. What do they need to do to change that?

The big shift that I have seen which was accelerated during COVID is that sustainability is now going mainstream. Ten years ago sustainability was still on the edge of what we call CSR, corporate social responsibility. If you enter any boardroom today, they’re all talking about the transformations that their industry will go through, and many of them are driven by pressures like climate changes or biodiversity loss that is really threatening business models. I think that level of awareness wasn’t there 10 years ago. The second big thing is that we now understand is that it’s not about solving just one thing. You can’t just focus on energy use or the way food is produced, you really need to think more about system transformation. And I see it now, companies are preparing for this. For example, the conversation about regenerative agriculture, which is one of the hot topics, addresses a couple of things now: it will improve the quality of the soil, it will sequester carbon, it gives farmers a new stream of income. So what we’re seeing now is that the system approach to these changes is much stronger. Conceptually, ten years ago, we talked about things like true value. But today the conversion is around how we change capitalism to ensure that a vision like this can actually be delivered. it’s a completely different conversation than the one we were having 10 years ago.

What are you hearing from the business leaders you work with directly? Are they also talking about changes to capitalism?

In 2019, The Business Roundtable came out with a statement saying that shareholder capitalism was over and that we needed to move to stakeholder capitalism. That has since been being picked up by The World Economic Forum in their stakeholder capitalist approach. Behind the scenes, so much more has happened. There is a thing called TCFD, Task Force on Climate-related Financial Disclosures, which has gained enormous traction. More than 4,000 companies in the world now implement this, which works to integrate climate risk into risk assessments, strategic planning and disclosures to capital markets? The Financial Risk and Sustainability Network, which works within the European Union, has begun consultations to set up a sustainability standards board which will integrate non-financials into accounting rules. And while [Blackrock Chair] Larry Fink’s annual letter to CEOs is always the loudest, we see that many investors are asking sharper questions about sustainability, and bringing those questions to company shareholder meetings. There has been a real shift. We see it within our own membership, about a year and a half ago, we started to talk to companies about pulling together a CFO network because the conversation of sustainability had moved into the CFO office, and that is now one of our fastest growing areas of work with companies, because they’ve seen that the conversation with their investors has completely changed.

Do you think this is ultimately about competition? If one company focuses on sustainability do others follow?

There are two types of things happening. One is about actual transformation, how do you decarbonize the energy you use? That’s really a competitive space. Look at car companies, now there’s a real race to the top in which one company sets the most ambitious goals of moving to electric or alternative forms of mobility and others follow. I see this all the time on the boards I have access to. It’s a matter of life or death.  

The other thing you see, because not every sector is that competitive, is a mindset shift. Executives are thinking: How do we actually think about the purpose of business? How do we integrate social and environmental impacts? How do we think about the long term? 

We need to change the rules of business altogether, and get everybody on board. We’re fortunate to work with leading companies who, out of their own will, chose to be part of our efforts. But at the end of the day, we’re going to have to change the accounting rules. We have to make those mandatory, and we have to make the progress that companies are making comparable through those rules, so that investors can use them to choose where to put their money. 

But how do you measure a mindset shift? How can you be sure this isn’t all about optics?

I think we need to map out which policies and regulations that are actually barriers to making the transformations that we’re talking about here, you know, things like fossil fuel subsidies and some of the agricultural subsidy systems. Those are just working against any type of sustainability programs. So we need to use our collective voice to end those. Companies are not governments. They’re not democratically chosen. So all we can do is advocate for those changes, but what we’re asking them to do is to make sure that the voice of the company is consistent. You cannot have a strategy that is sustainable and then be part of associations or other gatherings that advocate completely opposite positions.

The most powerful lever in my mind is the change of capitalism, the move towards standard ESG (environmental, societal and governance) disclosures that will then be presented to capital markets. At the end of the day, that’s a conversation that will primarily fall on the regulators who create and monitor accounting rules. But in the conversation between corporate and capital markets, when we provide comparable materiality,  ESG-based information, there will be an impact on capital allocation decisions. The view is quite simple, the more sustainable a business is, the lower the cost of capital ought to be, that’s what I mean by system change and a mindset shift. That’s going to accelerate this transition faster than anything else I can think of. 

How hopeful are you that things will change and businesses will comply? 

I don’t think you can work in our line of business if you’re a pessimist. There’s plenty of reason to be worried, but two years ago we brought all of our members together and I made a speech to all of the CEOs present. I told them that we need to move to a situation where every company sets a net-zero carbon target by no later than 2050. This is what science dictates, when you look at climate change. This is what leading companies in a group like ours should commit to. That did not go down very well. 

A year ago, we pushed it (after consultation) into the membership criteria for the World Business Council. That was accepted with about 93% of the vote, so almost all companies accepted that this was now criteria for membership. During the COVID crisis, I have seen so many companies, even big oil and gas companies, coming out with these targets. So yes, I think the mindset is shifting. 

What do you imagine the landscape will look like 10 years from now? 

There will be mandatory accounting rules for all companies in the world to disclose their and their natural, social and financial capital performance. In the key systems, particularly the food system and the energy system, there will be true value pricing. Ten years from now, we will see that capital markets are able to differentiate companies not just on their financial performance, but on environmental and social performances as well. I would expect combustion engines will be banned in all major economies. A large part of the agricultural industry will have moved to regenerate practices. I’m probably optimistic, but I see enough evidence and more importantly, I see enough CEOs on the case now to believe that those things can be delivered.